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Modularity and the Organization of International Production

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  • Ari Van Assche

    (Economics, University of Hawaii-Manoa)

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    Abstract

    In many globalized industries, vertical outsourcing seems to co-evolve with horizontal integration in the component sector. In order to account for this phenomenon, I incorporate modularity into an industry-equilibrium model with monopolistic competition and perfect contracts that allows the organization of the firm to be endogenous in both the vertical and horizontal dimensions of production. The model illustrates that the co-evolution is most likely to occur in industries with modular product architectures and high increasing returns to scale in the intermediate good sector. This paper also provides a theoretical legitimation of Stigler's contentious conjecture that firm production structures become vertically disintegrated as an industry expands.

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    File URL: http://www.eastwestcenter.org/fileadmin/stored/pdfs/ECONwp065.pdf
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    Bibliographic Info

    Paper provided by East-West Center, Economics Study Area in its series Economics Study Area Working Papers with number 65.

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    Length: 29 pages
    Date of creation: Nov 2003
    Date of revision:
    Handle: RePEc:ewc:wpaper:wp65

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